On 14 August 2024 the High Court handed down the judgement of Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27 (Proceedings), finding that Productivity Partners Pty Ltd, trading as Captain Cook College (College), engaged in systemic unconscionable conduct in contravention of section 21 of the Australian Consumer Law (ACL), by:
- removing consumer safeguards from its enrolment and withdrawal process; and
- receiving additional government funding under the former VET FEE-HELP scheme (VFH Scheme).
The former VFH Scheme provided a way for the Commonwealth to assist people in funding their vocational education and training (VET) by paying eligible person’s tuition directly to a registered training organisation on the understanding that the person would incur a debt. The debt comprised of the amount of the debt fees plus a 20% loan fee and was to be repaid to the Commonwealth over time through the tax system once the person earned over a specific threshold.
The Proceedings were commenced by the Australian Competition and Consumer Commission (ACCC) against the College for its removal of two system controls which effectively allowed ‘unsuitable’ students, being students without the minimum language, literacy and numeracy skills required for the College, to remain enrolled in online courses, and for the College to continue claiming VET fees for these students.
When these consumer safeguards were removed on 7 September 2015, the number of unsuitable students enrolled increased significantly, and from August to September 2015, the College’s revenue under to the VFH Scheme increased by 225%. The removal of the safeguards had impacts on students and the College from 7 September 2015 to 18 December 2015.
The High Court upheld the Federal Court’s finding that the College had engaged in unconscionable conduct.
This case comes as a valuable reminder to companies to closely consider the impacts of any changes to system controls and to obtain legal advice to ensure changes do not result in any breaches of the law. A failure to appropriately execute system control changes can evidently be costly, and the ACCC has demonstrated its appetite to pursue entities for breaches of the ACL, irrespective of the length of the breach.
In November 2018, the ACCC commenced proceedings against the College for systemic unconscionable conduct in breach of section 21 of the ACL.
In particular, the College removed consumer safeguards by:
(together, Safeguards).
The College’s conduct affected consumers who had VET FEE-HELP debt and whose enrolment in the College’s online courses was processed from 7 September 2015 to 18 December 2015. Approximately 5,500 students were affected, with the VET FEE-HELP debt reaching over $60 million. Despite this, 98% of students did not complete a single component of their enrolled course. The High Court upheld the Federal Court’s finding that the College had engaged in unconscionable conduct to increase their revenue and found that the College was aware of the risk of misconduct by the course advisors, and the risk of unsuitable enrolments, prior to removing the Safeguards.
In particular, the High Court dismissed the College’s appeal that they did not contravene section 21 of the ACL. The High Court found that course advisor’s misconduct to encourage enrolments and the occurrence of unsuitable enrolments were ‘manifest’, ‘commonplace’ and ‘prevalent’ occurrences as opposed to ‘a mere risk involved in a commercial judgment’. In conjunction with the removal of the Safeguards, this satisfied a contravention of section 21 of the ACL.
Upon rejection of the appeal by the High Court, the matter was referred back to the Federal Court for the determination of penalties.
The costs of the Proceedings to the College, in the form of legal fees, resources, time and impact on reputation have been significant, and are still ongoing as the parties engage in the ADR proceedings. This does not even include the upcoming penalties or the costs of the College of other relief likely to awarded.
It is worth noting that the ACCC commenced the Proceedings despite:
The Safeguards previously counterbalanced the use of college advisors, who sought to ‘recruit’ consumers for their online courses.
This case clearly highlights the ACCC's appetite to commence legal action against companies alleged to have behaved unconscionably.
The College did not adequately consider the impact that removing the Safeguards would have on its system controls, and the College’s compliance with the law. The College failed to adequately identify and resolve its breaches of the law in a timely manner and is likely to suffer harsh penalties in addition to the legal costs, resources, time, and effect to its reputation, that it has already suffered.
This case acts as a timely reminder to companies to be careful when making operational changes and to seek legal advice in respect of the same to ensure no laws are being breached. This initial due diligence may save the company years of litigation with the ACCC, and all the legal and reputational costs associated with the same.
For any advice on the ACL or unconscionable conduct, please contact Iain Freeman, Partner in Lavan’s Litigation, Dispute and Resolution team.
